Warehouses are used as stock supply of on-sale items because of uncertainties of demand or because some suppliers only deliver large lot sizes. Apart from figuring out what product has to be ordered when and at what quantity, one of the most important problems in warehousing is to set the size of the safety stock correctly. The safety stock is supposed to cover the uncertainty of demand during the inbound lead time. If the safety stock level is too high then more financial resources are bound to the inventory than necessary. If, however, the safety stock level is too low, the supplier will more often run into out-of-stock situations and thus will not be able to satisfy the demand and thereby fail to meet the desired serviceability.
Most of the software tools used in supply chain management and warehousing determine the level of safety stock for each of the products under the assumption that the daily demands are normally distributed or by simply setting a fixed safety stock level. However, the problem with this assumption is that in many cases the demand is far from being normally distributed. In particular, this is true for certain kinds of warehouses like for spare parts. In the end this results in incorrectly calculated safety stock levels, i.e. either the achieved service levels end up being too high and therefore the inventory level could have been reduced or the achieved service levels end up being too low, thereby failing to meet the desired serviceability. In both cases additional costs are generated.
From Kohonen, Teuvo: “Self-Organizing Maps”, 3rd edition, Springer Ser. in Information Sciences 30, Berlin 2001, a clustering algorithm is known. Additional information thereto can be found in Kohonen, Teuvo, “The self-organizing map”, Neurocomputing 21, No. 1-3, 1-6 (1998).
In Kullback, Leibler: “On Information and Sufficiency”, in Annals of Mathematical Statistics 22 (1951), pp 79-76, the Kullback-Leibler distance is described.
In Scarf, “The Optimality of (s,S) Policies in the Dynamic Inventory Problem”, in Arrow, Suppes (Ed.), Mathematical Methods in the Social Science”, Stanford University Press, Stanford 1960” the (s,S) replenishment method is described. More about that can be found in Zheng, Y.-S. “A simple Proof for the Optimality of (s,S) Policies in Infinite Horizon Inventory Systems”, Journal of Applied Probability 28, 802-810 (1991)
In Schneider, H., “Effect of Service-Levels on Order-Points or Order-Levels in Inventory Models”, International Journal of Productions Research 19, 615-631 (1981) service level definitions are described.